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REPORT DIGEST REGIONAL
OFFICE OF EDUCATION #48 FINANCIAL
AUDIT (In Accordance with the
Single Audit Act and OMB Circular A-133) For the Year Ended: June 30, 2009 Summary
of Findings: Total this audit 5 Total last audit 8 Repeated from
last audit 5 Release Date: January 14, 2010
State of I Office of the Auditor General WILLIAM
G. HOLLAND AUDITOR GENERAL
To
obtain a copy of the Report contact: Office
of the Auditor General (217)
782-6046 or TTY (888) 261-2887 This
Report Digest and Full Report are also available on the
worldwide web at http://www.auditor.illinois.gov |
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SYNOPSIS
·
The Regional Office of Education #48 lacked adequate policies and procedures
over certain administrative functions.
·
The Regional Office of Education #48 did not have
adequate controls over property and equipment.
{Expenditures and Revenues are summarized on the
reverse page.} |
REGIONAL OFFICE OF
EDUCATION #48
FINANCIAL AUDIT
For The Year Ended
June 30, 2009
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FY
2009
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FY
2008
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TOTAL REVENUES
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$7,435,356 |
$6,751,520 |
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Local Sources |
$1,171,164 |
$990,172 |
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% of Total Revenues |
15.75% |
14.67% |
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State Sources |
$3,310,021 |
$2,613,656 |
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% of Total Revenues |
44.52% |
38.71% |
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Federal Sources |
$2,954,171 |
$3,147,692 |
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% of Total Revenues |
39.73% |
46.62% |
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TOTAL EXPENDITURES |
$7,769,006 |
$6,810,961 |
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Salaries and Benefits |
$3,212,005 |
$2,685,089 |
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% of Total Expenditures |
41.34% |
39.42% |
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Purchased Services |
$2,057,678 |
$1,848,301 |
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% of Total Expenditures |
26.49% |
27.14% |
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All Other Expenditures |
$2,499,323 |
$2,277,571 |
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% of Total Expenditures |
32.17% |
33.44% |
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TOTAL NET
ASSETS |
$1,025,938 |
$1,358,098 |
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INVESTMENT IN CAPITAL ASSETS |
$269,730 |
$290,652 |
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Percentages may not add due to rounding. |
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REGIONAL SUPERINTENDENT |
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During Audit
Period: Honorable Gerald Brookhart Currently: Honorable Gerald Brookhart |
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The Regional
Office of Education #48 did not have sufficient internal controls over the
financial reporting process. The Regional Office
of Education #48 lacked adequate policies and procedures
over certain administrative functions.
The Regional
Office of Education #48 did not have sufficient internal controls over the
financial statement preparation process. The Regional
Office of Education #48 did not have adequate controls over property and
equipment. The Regional Office of
Education #48 had unallowable expenditures charged to certain federal
programs. |
FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS
INADEQUATE INTERNAL CONTROLS OVER
FINANCIAL REPORTING The Regional Office of Education #48
did not have sufficient internal controls over the financial reporting
process. The Regional Office of
Education is required to maintain a system of controls over the financial
reporting process to be able to initiate, authorize, record, process and
report financial data reliably in accordance with generally accepted
accounting principles (GAAP). In
testing, auditors noted the following deficiencies in internal control:
Management or employees in the
normal course of performing their assigned functions may not prevent or
detect financial misstatements or possible fraudulent activity in a timely
manner. The ROE also may not be in
compliance with laws, regulations, and contract provisions. The Regional Office of Education #48
did not consistently implement established internal controls. Regional Office personnel were also not
aware of what duties should be segregated in order to have a more effective
process. (Finding 09-1, pages 12 a-c) The Regional Office had attempted to
segregate some of the accounting responsibilities, but there were areas that
should be improved. In order to correct the deficiencies
noted above, auditors recommended that the Regional Office of Education #48 personnel
should do the following: 1.
The Regional Office should restrict access
to the accounting software to limit employees’ access to only the areas
necessary for them to perform their daily activities. 2.
The authorized check signers should only
include members of management who do not have access to the accounting
software and are not part of the cash receipt or disbursement process. 3.
A policy should be implemented which
strictly prohibits the same person from approving, authorizing, and receiving
a payment. 4.
The approval process should be mandatory
prior to any disbursement being made. 5.
The Regional Office should require all
salary contracts to be accurate and up to date in personnel files. The Regional Office of Education #48
responded to the deficiencies identified as follows: 1.
Segregation of duties in the cash
disbursement and accounting process:
Subsequent to year end the Regional Office reported that they had
limited employees’ access to the accounting software to only the areas
necessary for them to perform their daily activities. Also, individuals with access to record
information in the accounting software have been removed as check signers on
ROE #48 accounts. Further, the ROE
signature stamp, which is used in the absence of the Regional Superintendent,
is now kept in a secure location with restricted access to employees who are
not a part of the disbursement process.
The Regional Office noted that these procedures were implemented
September 15, 2009. 2.
Same employee approved and signed checks
that were made payable to herself: A
practice was implemented as of September 15, 2009, which strictly prohibits
the same person from approving, authorizing, and receiving a payment. According to the Regional Office, a policy
mandating and detailing that practice will be written and implemented by
December 1, 2009. 3.
Approval not obtained until after
disbursements took place: The Regional
Office has subsequently reviewed its approval process of disbursements and
has reiterated the policy of obtaining appropriate approval prior to any
disbursement during its monthly accounting staff meetings. The ROE is currently considering
implementing additional monitoring to ensure that the proper authorizations
are being obtained on a timely basis. 4.
Salary contract omitted from the personnel
file: The Regional Office reported
that as of September 15, 2009, all salary contracts were reviewed for
accuracy, updated and placed in the appropriate personnel files. The Regional Office is currently developing
a policy that clarifies who must approve such contracts and a system to
ensure that all contracts are obtained and archived. LACK OF ADEQUATE POLICIES AND PROCEDURES
OVER CERTAIN ADMINISTRATIVE FUNCTIONS The Regional Office of Education #48
lacked adequate policies and procedures over certain administrative
functions. As a recipient of federal,
State, and local funds from various grantor agencies, the Regional Office
must incorporate certain administrative polices and procedures into their
operations in order to comply with the grant agreements with these
entities. The Regional Office is
required to account for each individual program’s activity in individual
funds for accounting purposes. The Regional Office #48 receives
federal funding from the State to support school improvement services for
schools in academic difficulty. A
large portion of this money is given to other Regional Offices to support
their activities within the program, and the rest is the Regional Office #48’s
portion. During the year, the Regional
Office created an internal fund to keep track of their portion of funds from
Title I – School Improvement and Accountability program and the Coordination
and Services Grant Program and transferred $117,594 and $7,147, respectively
to this account. Expenditure reports
to ISBE were inaccurate because the ROE classified the transfer of these
funds as “payments to other governments” rather than classifying the
transaction in the specific expenditure categories where the funds were
used. (Finding 09-2, pages 12 d-e) The auditors recommended that the
Regional Office of Education #48 should ensure that in future fiscal years
there are not any funds created that are not directly associated with a
program. Expenditure reports should
accurately reflect the activity within a program. The Peoria County Regional Office of
Education #48 responded that as previously stated in its FY’08 audit response
the ROE intends to comply with all the reporting requirements of the various State
and federal regulatory agencies. The
Regional Office noted that they corrected this matter as soon as it was
brought to their attention in the prior year audit. Unfortunately, several months of the new
fiscal year had already elapsed before this occurred. The Regional Office noted that its current
policy is that no funds will be created that are not directly associated with
a program and they will continue to monitor to ensure that none are
created. While these funds were
inaccurately reported as “payments to other governments,” the ROE believes
that the funds were properly expended for program purposes. Controls Over Financial Statement Preparation
The Regional Office of Education #48
is required to maintain a system of controls over the preparation of financial
statements in accordance with generally accepted accounting principles
(GAAP). Regional Office internal
controls over GAAP financial reporting should include adequately trained
personnel with the knowledge and expertise to prepare and/or thoroughly
review GAAP based financial statements to ensure that they are free of
material misstatements and include all disclosures as required by the
Governmental Accounting Standards Board (GASB). The Regional Office of Education #48
did not have sufficient internal controls over the financial statement
preparation process. While the
Regional Office maintains controls over the processing of some accounting
transactions, there are not sufficient controls over the preparation of the
GAAP based financial statements for management or employees in the normal
course of performing their assigned functions to prevent or detect financial
statement misstatements and disclosure omissions in a timely manner. For example, auditors, in their review of
the Regional Office’s accounting records, noted that numerous
adjusting entries were required to present the financial statements in
accordance with generally accepted accounting principles. According to Regional Office
officials, they did not have adequate funding to hire and/or train their
accounting personnel in order to comply with these requirements. The Regional Office attempted to address this
issue following the issuance of the audit report for fiscal year 2008;
however, the Regional Office did not post adjusting entries in its accounting
records to comply with GAAP. (Finding 09-3, pages 12 f-g) This
finding was first reported in 2007. The auditors recommended that, as part of its internal control over the
preparation of its financial statements, including disclosures, the Peoria County Regional Office of
Education #48 should implement
a comprehensive preparation and/or review procedure to ensure that the
financial statements, including disclosures, are complete and accurate. Such procedures should be performed by a
properly trained individual(s) possessing a thorough understanding of
applicable generally accepted accounting principles, GASB pronouncements, and
knowledge of the Regional Office of Education’s activities and operations. The Peoria Regional Office of
Education #48 responded that it is in the process of developing a plan to
identify and correct the issues that resulted in the need for numerous
adjusting entries to present the financial statements in accordance with
generally accepted accounting principles.
Further, the ROE noted that they are exploring options to strengthen their
ability to review the financial statements to ensure that the financial
statements, including disclosures, are complete and accurate. (For previous
Regional Office response, see Digest Footnote #1.) INADEQUATE CONTROLS
OVER PROPERTY AND EQUIPMENT The Regional Office of Education #48
did not have adequate controls over property and equipment. The ROE policy is to maintain detailed
fixed asset records for both accounting purposes as well as insurance
purposes for fixed assets costing $500 or more and that have a useful life of
greater than one year. Generally accepted
accounting principles require that an inventory of all fixed assets and
depreciation schedules for assets meeting the capitalization threshold for
reporting be maintained. In addition,
the ROE is required to keep track of each asset by program in order to be in
compliance with grantors. Numerous issues were found with
fixed asset reporting during auditor testing of the fixed assets within the
Regional Office of Education #48 including:
An incomplete fixed asset listing
does not provide an adequate basis for physical control and losses may occur
without being detected. Inaccurate
recording of the book value of fixed assets and depreciation expense can
cause the financial statements to be materially misstated. Also, any assets that are required to be
returned to the grantor after the end of the program cannot accurately be
identified.
Regional Office personnel had not been adequately trained to
understand the standards associated with fixed asset reporting. (Finding 09-4,
pages 12 h-i) This finding was first reported in 2006. Auditors recommended that the
Regional Office of Education #48 should ensure that each fixed asset addition
is appropriately recorded in the listing and that each required attribute,
such as useful life and cost, is included in the listing in accordance with
the established policy. If a purchase cost
is not applicable to the asset, then the estimated fair market value at the
date of acquisition should be recorded.
The Regional Office should also prepare listings of fixed assets by
program. Auditors also recommended
that the Regional Office personnel involved with fixed asset reporting review
the ROE Accounting Manual to learn and understand the standards involved with
fixed asset reporting. The Peoria County Regional Office of
Education #48 responded that by June 30, 2010, it will ensure that each
capital asset addition is appropriately recorded in the listing and that each
required attribute, such as useful life and cost and program, is included in
the listing in accordance with the established policy. If a purchase cost is not applicable to the
asset, then the estimated fair market value at the date of acquisition will
be recorded. Regional Office personnel
involved with capital asset reporting will review the ROE Accounting Manual
to learn and understand the standards involved with capital asset
reporting. Additionally, the Regional
Office noted that a reconciliation of equipment accounts per the general ledger
to additions recorded in capital asset records will be performed for the year
ended June 30, 2010. (For previous Regional Office response, see Digest
Footnote #2.) UNALLOWABLE
COSTS CHARGED TO FEDERAL PROGRAMS The Regional Office of Education #48 had
unallowable expenditures charged to certain federal programs. To be allowable under federal awards, costs
must meet general criteria under Circular A-87. Auditors tested the
Title I School Improvement and Accountability Grant and the Special Education
– IDEA Part D programs as major programs during fiscal year 2009. As part of the compliance audit program we selected
40 disbursements for each program (for a total of 80 tested) and reviewed the
invoices for compliance with the programs.
The Regional Office received a total of $1,241,048 for the Title I
School Improvement and Accountability Program and a total of $384,830 for the
Special Education – IDEA Part D. During compliance
testing of these specific federal programs, auditors found:
·
Two disbursements of 40 tested were made for
purchases that were not allowable costs per A-87. One expenditure related to the purchase of
two cell phones, the other related to entertainment costs.
·
One disbursement of 40 tested lacked adequate
documentation to support the expenditure.
·
One disbursement of 40 tested lacked adequate
documentation to provide support for the expenditure. The disbursement related to cell phone
usage. The supporting documentation
provided by the Regional Office did not have enough detail to demonstrate
that the cell phones were not used for personal purposes. The Regional Office #48
personnel did not have adequate training and knowledge to establish
sufficient internal control procedures that would detect noncompliance with requirements.
(Finding 09-5, pages 13 a-c) Auditors recommended that the
Regional Office of Education #48 develop and implement procedures that will ensure compliance
with their federal programs. We
recommended that Circular A-87 be reviewed by all personnel involved with
charging costs to federal programs.
The ROE should ensure its Controller has adequate and necessary
training and accounting background to review invoice support for proper
classification, proper support, compliance with federal award requirements
and compliance with generally accepted accounting principles. The Peoria County Regional Office of
Education #48 responded that it will implement and develop procedures that
will ensure compliance with their federal programs. ROE administrators and bookkeepers involved
with charging costs to federal programs will review Circular A-87. The ROE also noted that they are in the
process of developing a policy related to cell phone usage and the
documentation of business vs. personal use.
AUDITORS’ OPINION Our auditors state the Regional
Office of Education #48’s financial statements as of June 30, 2009 are fairly
stated in all material respects. _____________________________________ WILLIAM
G. HOLLAND, Auditor General WGH:KJM SPECIAL
ASSISTANT AUDITORS Our
special assistant auditors were Kemper CPA Group LLP. DIGEST FOOTNOTES #1: Controls Over Financial Statement
Preparation —Previous Regional Office Response In
its prior response in 2008, the Regional Office of Education #48 responded that it will implement a comprehensive preparation and
review procedure to ensure that the financial statements, including
disclosures are complete and accurate.
Regional Office officials stated they are currently exploring the
hiring of an individual with the necessary expertise to help accomplish this
task, assuming finances are available for this purpose. Further, they intend to use the
aforementioned CPA personnel from the Peoria County Auditor’s office to help
them in this area as well. #2: INADEQUATE CONTROLS OVER PROPERTY AND
EQUIPMENT – Previous Regional Office Response In
its prior response in 2008, the
Regional Office of Education #48 responded that it will, with assistance from CPA
personnel from the Peoria County Auditor’s office, accomplish each of the
recommended tasks listed above. They were
also researching appropriate fixed asset accounting system software, which
they intend to purchase in order to reorganize the current records and
properly record and maintain an inventory of all fixed assets and
depreciation schedules in the future. |